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On the scale of financial intermediaries


  • Adrian, Tobias

    (Federal Reserve Bank of New York)

  • Boyarchenko, Nina

    (Federal Reserve Bank of New York)

  • Shin, Hyun Song

    () (Bank for International Settlements)


This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and for capital regulation..

Suggested Citation

  • Adrian, Tobias & Boyarchenko, Nina & Shin, Hyun Song, 2015. "On the scale of financial intermediaries," Staff Reports 743, Federal Reserve Bank of New York, revised 01 Dec 2016.
  • Handle: RePEc:fip:fednsr:743 Note: Previous title: "The Cyclicality of Leverage"

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    References listed on IDEAS

    1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    2. Jon Danielsson & Hyun Song Shin & Jean-Pierre Zigrand, 2011. "Balance Sheet Capacity and Endogenous Risk," FMG Discussion Papers dp665, Financial Markets Group.
    3. Anton Korinek, 2011. "Systemic Risk-Taking: Amplification Effects, Externalities, and Regulatory Responses," NFI Working Papers 2011-WP-13, Indiana State University, Scott College of Business, Networks Financial Institute.
    4. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    5. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    6. Adrian, Tobias & Boyarchenko, Nina, 2012. "Intermediary leverage cycles and financial stability," Staff Reports 567, Federal Reserve Bank of New York, revised 01 Feb 2015.
    7. Adrian, Tobias & Friedman, Evan & Muir, Tyler, 2015. "The cost of capital of the financial sector," Staff Reports 755, Federal Reserve Bank of New York.
    8. Angeloni, Ignazio & Faia, Ester, 2013. "Capital regulation and monetary policy with fragile banks," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 311-324.
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    Cited by:

    1. Sandra Eickmeier & Norbert Metiu & Esteban Prieto, 2016. "Time-varying volatility, financial intermediation and monetary policy," CAMA Working Papers 2016-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Adrian, Tobias & Moench, Emanuel & Shin, Hyun Song, 2013. "Dynamic leverage asset pricing," Staff Reports 625, Federal Reserve Bank of New York, revised 01 Dec 2014.
    3. Abbate, Angela & Thaler, Dominik, 2015. "Monetary policy and the asset risk-taking channel," Discussion Papers 48/2015, Deutsche Bundesbank.
    4. Leonardo Gambacorta & Hyun Song Shin, 2016. "Why bank capital matters for monetary policy," BIS Working Papers 558, Bank for International Settlements.

    More about this item


    financial intermediation; macro-finance; capital regulations;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G00 - Financial Economics - - General - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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